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Bond Markets Holding Ground Just Inside Weakest Levels
Posted to: Micro News
Thursday, August 29, 2013 9:21 AM
This is one of those less-than-common situations where the proverbial bull just ran through the china shop without the typical effect. Plates may be teetering on their stands and a few may have been broken, but most of the inventory remains intact.
In other words, we had bullish data invade a space that is predisposed to being damaged by bullish data recently. But the damage has been minimal so far. Even if we can't be sure we've seen the worst of it yet, we're getting a good bounce so far on our second approach to the weakest levels of the morning.
10yr yields, for instance, came into the domestic session just under 3bps higher after a relatively uneventful overnight session. They moved up to 2.83 immediately following the GDP and Jobless Claims data, but are now back down to 2.81.
MBS similarly opened up slightly weaker than yesterday's latest levels with Fannie 4.0s at 103-00 ahead of the day and falling to 102-24 after the data. They're now back up to 102-28.
The move back in the other direction hasn't been swift, but the defense of the weaker levels (determination of Treasury yields to hold under the ceiling at the highs or of MBS Prices to hold above a floor at the lows) has been reasonably strong. It's not safe to assume we won't revisit the weakest levels, but at least we're in a position to consider that it might not happen (as opposed to simply watching prices fall lower and lower).
There are no other significant economic reports this morning though the last of the week's Treasury auctions will hit at 1pm. Bond markets may be slightly hesitant ahead of the auction, but may express some "relief bid" afterward (this refers to the 3-day cycle of Treasury auctions where investors know they'll be bidding on a set amount of Treasuries but not exactly how that bidding will go. This can keep purse strings just slightly tighter until the auction cycle is successfully completed, and slightly looser afterward).
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